Russia's miners infuriated by fraud International aid wasted in the past

more pending from IMF

Coal industry's future is bleak

July 19, 1998|By Kathy Lally and Will Englund | Kathy Lally and Will Englund,SUN FOREIGN STAFF

MOSCOW -- All across Russia, coal miners are stirring. Miners from the Arctic are camped outside the Russian White House. In the east, miners are again blocking the Trans Siberian Railroad. In the Urals, miners have blocked the highway and the railroad. The week before last, they took the mine director hostage for a day.

While thousands of miners in the most bleak and inhospitable regions of Russia have waited months and even years for an estimated $500 million in back pay, at least $240 million set aside to revitalize their industry has disappeared, either stolen or squandered, according to World Bank officials.

Meanwhile, the insiders who profited as government money and Western aid passed through their hands have been enjoying their wealth, untouched by prosecution. Moreover, by last week, Russia's financial situation was so precarious that worried government officials said only a $22.6 billion loan from the International Monetary Fund would stave off chaos.

The coal industry exemplifies all that is wrong with reform in Russia, the corruption, the cronyism and the lack of political will that have ravaged the national economy.

The World Bank has been working with Russia since 1993, trying to help transform the grossly inefficient Soviet industry into private and profitable enterprises. It granted Russia a $500 million loan to help retrain miners, close unproductive mines and revamp the remaining mines. Part of the more than $1.5 billion the government budgeted for the coal industry in 1996, it had little effect.

"There was never proper control, and there was a serious conflict of interest," says Vadim Voronin, deputy director of the World Bank's Moscow office. "Unfortunately,some of the money was misused or mismanaged."

Despite growing protests and threats of social unrest from the miners, there has been no complete accounting of what happened to the money. Russian officials do not dispute Voronin's assessment and confirm that millions of dollars have gone missing.

Igor S. Kozhukhovsky, Russia's deputy minister of fuel and energy, estimated that much of the $500 million "intended for social protection of the miners was wasted and never reached them. That was where the scandal started."

'Extent is unprecedented'

Eight years ago, the miners were President Boris N. Yeltsin's most ardent allies. They rallied enthusiastically for democracy, giving Yeltsin the strength to overwhelm the old system.

Today, some 300 of them sit outside the White House, banging their helmets on the paving stones when they catch sight of an official, demanding Yeltsin's resignation and shouting for him to curb the policies that have caused them anguish.

Vladimir Stasyuk was among the protesting miners who set out from the Arctic Circle coal town of Vorkuta in early June on the 40-hour train journey to Moscow. He had just been paid about $660 -- his wages for September 1997.

The government has largely ignored the encampment, except to prohibit tents and grills.

"It was awfully hard here at first," said Stasyuk, 44, "but we're getting used to it. The Russian people are very patient. We can work for years without pay, and we can take any temperature. But when we run out of patience, then comes the storm."

When the World Bank began consulting with Russia on the coal industry, everyone understood that the problems were huge.

"The peculiarity of the problem is the extent of it," Voronin said. "The extent is unprecedented. The Soviet Union was the major producer of coal in the world, and it wasn't regulated by the market."

Mismanagement

Russia reached peak production in 1988, mining 425 million tons of coal that year. But the industry was so inefficient that it cost more to produce the coal than it was worth. By 1993, one of every three tons was paid for by subsidies, Voronin said.

In the early 1990s, the coal sector employed more than 1 million people at 250 mines and open pits; by last January, that number had been slashed to 466,000 employees. Ninety-four mines have stopped production, but only 46 of those are officially considered closed. Sixty more are to be closed this year. Only 144 of the mines are considered viable -- but even those will have to lay off miners.

The World Bank's $500 million loan for the coal industry in 1996 was disbursed directly to the national budget rather than attached to a specific program. The loan was intended to help restructure the industry by determining which mines were viable, closing those that were not, retraining miners and relocating those who lived where there was no hope of other jobs.

Money quickly evaporated, Voronin said, once it reached Rosugol, a private company the government created in 1992 to manage the coal sector, and which was shut down last year.

Rosugol ran the industry. It determined the subsidy each mine should get, then told the government how much was needed and took control of the money. It managed equipment and supplies and negotiated exports.